FOREIGN investors have called on Chinese regulators to review the mechanism that allowed more than half its listed companies to halt trading in their shares during the recent market rout, trapping investors as prices tumbled.

    As China’s stock market dropped 30 percent in less than a month, around 1,500 companies listed in Shanghai and Shenzhen suspended their stocks, many citing reasons that would not typically require a trading halt or were not borne out by their subsequent actions.

    As markets stabilized, more than half the suspended companies resumed trading.

    The suspensions reduced liquidity in stock portfolios and exchange-traded funds, forcing some to suspend redemptions and making it difficult for banks to value derivatives based on shares.

    “We hope that after each and every situation like this, people do go over the rules and make improvements to make the market as investable as possible,” said Rodney Comegys, head of investments Asia Pacific at Vanguard.

    Investors said a review of suspension rules was key if China hopes to be included in index compiler MSCI’s key Emerging Markets Index, which could bring in big flows of cash from foreign institutions.

    “One of the issues [MSCI] may look closely at is shares suspension,” said Jack Lee, head of China A-share research at global investment firm Schroders in Hong Kong.

    “This incident shows there is room for improving the share suspension mechanism,” he said, noting that these were voluntary actions by listed companies.

    MSCI declined to comment.

    FTSE Russell, another index compiler, will look at share suspensions as part of its A-share review, said an individual familiar with its thinking.

    Rules published on the Shanghai and Shenzhen exchange websites outline a range of circumstances in which companies should request share suspensions, none of which include a market-wide selloff. However, the rules afford exchange officers a high degree of discretion to grant suspensions, said one analyst. (SD-Agencies)